Qualitative similarity and stock price comovement

Travis Box

Journal of Banking & Finance, 2018, vol. 91, issue C, 49-69

Abstract: I introduce a method for gauging the qualitative similarity of firm-specific information based on linguistic commonality in newswire text. I show that this new qualitative similarity measure predicts future cross-firm return correlation even after accounting for the pair's contemporaneous price comovement, common exposures to systematic risk, firm liquidity, price, index membership, text volume, headquarters location, product similarity, shared mutual fund or institutional ownership, common analyst following and newswire co-mentions. I also demonstrate that content produced solely by journalists cannot predict an economically meaningful portion of future comovement. Out-of-sample tests confirm that knowledge of qualitative similarity can also reduce portfolio risk.

Keywords: Information consumption; Information-driven comovement; Textual analysis; Correlation (search for similar items in EconPapers)
JEL-codes: C33 D81 D83 G12 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:91:y:2018:i:c:p:49-69

DOI: 10.1016/j.jbankfin.2018.04.010

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